Page 102 - MA12

M.8 Management Accounting (Section B)—ISC XII

Answers

1. (i) When an existing partner of a firm retires or dies, the remaining partners will get
(gain) his share of profit. So, the gaining partners should compensate the retiring
or deceased partner in the form of goodwill. The amount of compensation is equal
to the proportionate value of Firm’s Goodwill.
Retiring/Deceased Partner’s Share of Goodwill = Value of Firm’s Goodwill × Share of
Profits Sacrificed.
(ii) (a) Adjusting Entry to adjust salary or Commission to a partner:
Salary or Commission A/c ...Dr.
To Partner’s Capital A/c [In case of Fluctuating Capital]
To Partner’s Current A/c [In case of Fixed Capital]
(b) Closing Entry:
Profit and Loss Appropriation A/c ...Dr.
To Salary or Commission A/c
(iii) (a) On the basis of Time;
(b) On the basis of Sales or Turnover.
Deceased partner’s share of profit will be credited to his Capital Account and debited to
the continuing Partners’ Capital Accounts in their Gaining Ratio when the profit-sharing
ratio of the continuing partners changes.
(iv) Company can utilise the Securities Premium Reserve of ` 22,00,000 as follows:
(a) ` 10,00,000 to write off underwriting commission.
(b) Remaining ` 12,00,000 to provide for premium on redemption of 9% Debentures.
(v) Short-term borrowings are the borrowings which are taken during the year and are
repayable within 12 months or within the period of operating cycle from the date
of Balance Sheet.
The items included are:
(a) Loan repayable on demand; (b) Deposits:
(c) Bank overdraft or cash credit from banks.

(vi) JOURNAL OF VISHVA LTD.
Date Particulars L.F. Dr. (`) Cr. (`)

Sundry Assets A/c ...Dr. 8,40,000
To Sundry Liabilities A/c 80,000
To Motorola Ltd. 7,20,000
To Capital Reserve A/c (Balancing Figure) 40,000
(Being the assets and liabilities of Motorola Ltd. taken over)
Motorola Ltd. ...Dr. 7,20,000
To 9% Debentures A/c 6,00,000
To Securities Premium Reserve A/c 1,20,000
(Being the consideration paid by issue of 6,000; 9% Debentures)

Note: No. of Debentures to be Issued = Purchase Consideration ÷ Issue Price
= ` 7,20,000 ÷ ` 120 = 6,000 Debentures.